How to Choose A Stock

WOMBAT, INCVisual 1

Wombat, Inc., Makes a Product That…– Everyone needs– No one has– Is used daily– Cannot be duplicated– Will be needed in the future– Costs little to produce and ship– Doesn’t need to advertise– Will enjoy a growth rate of 50% per year for

the next ten years– Never had a down year in its– 100-year history

STRATEGIES FOR STOCK SELECTION—SUMMARYVisual 2

1. Peter Lynch: Go with what you know (after some research)

“During a lifetime of buying cars or cameras, you develop a sense of what’s good, what’s bad, what sells, and what doesn’t... and... you know it before Wall Street knows it.”

2. Markets: Current and FutureA project must have customers today and even more tomorrow or it isn’t growing.

Phase of Development—Early or Late?Global Markets—Can the product/service be

sold overseas?Demographics—Will a large percentage of the

population want this product?

3. Economic Cycle: Is the economy expanding or slowing?The performance of many stocks will be affected by economiccycles.

Good times: Most people who want to work are employed. People and businesses are spending money.

Not so good times: More people than usual are out of work or worried about

being out of work. People and businesses are not buying as much.

Defensive industries: Even in difficult times, people use toothpaste, eat

food, and use electricity.

Cyclical stocks: High-priced consumer goods like cars, appliances,

new houses Raw materials like aluminum, steel, and cement

4. Avoid Obvious Risks Front page companies and this year’s winners Current industry condition Changes in technology

5. Selecting Stock for The Stock Market Game

Very Short TermGrowth Stocks—Small companies, newer

companies,Stocks listed on the Nasdaq Stock Market